Written evidence submitted by Aureos Capital
1. AN EXECUTIVE
SUMMARY OF
THE MAIN
POINTS MADE
IN THE
SUBMISSION
- History has proved private sector growth is the
engine of development. The importance of the contribution of the
private sector in tackling poverty has been recently reinforced
at the UN MDG summit with DFID being a strong partner in the ratification
of this agreement.
- The key value addition of the private sector
is in facilitating economic growth at an enterprise level. However,
the largest development impact comes from sustainable small and
medium businesses which remain in the formal and informal sectors,
the largest providers of employment and economic output.
- A catalytic effect can be achieved in addition
by scaling up sustainable small and medium businesses, especially
those which are engaging in inclusive business practices. These
inclusive business practices comprise engaging with lower and
middle income individuals as producers, sellers, buyers and employees.
- These small and medium size enterprises however
face internal and external challenges when trying to grow including:
- Lack of patient capital.
- Lack of appropriate professional business knowledge.
- Lack of resource and business knowhow to take
advantage of opportunities.
- High cost of doing business.
- Lack of a sufficient pool of quality managers.
- Inability to overcome barriers and to scale-up.
- The private equity method is well placed to address
these challenges in so far as fund managers apply both a strong
process approach to instilling good practices as well as close
participation, working closely with the businesses to build their
capacity to thrive. This is the value addition afforded by Private
Equity which transcends the provision of capital.
2. A BRIEF INTRODUCTION
TO THE
SUBMITTER, PERHAPS
EXPLAINING THEIR
AREA OF
EXPERTISE
- Sev Vettivetpillai, CEO of Aureos Capital, was
a senior Investment Executive in the CDC Funds Group, when the
CDC was directly investing in equity and debt in local companies.
He served for three years at CDCs fund management company in Sri
Lanka where he was originating, evaluating, executing and monitoring
private equity deals in small and medium sized businesses. Sev
was at the forefront of the development of Sri Lanka's capital
markets. This was seen as a prime example of the development path
of small frontier markets, indeed setting the paradigm in terms
of liberalisation and deregulation.
- Sev then transferred to CDC in London, where
he was responsible for evaluating third party fund investments
where CDC was just an investor. In addition, he monitored CDC's
portfolio of 19 managed funds investing in Small and Medium Sized
enterprises in Central America, Africa and Asia.
- In 2001, 139 Small and Medium sized enterprise
investments made directly by CDC were spun off into Aureos, a
fund management company owned by CDC and Norfund (the Norwegian
Development Finance Institution). The mandate given to Aureos
was to manage out these investments and to raise new third party
capital to further invest in Small and Medium Enterprise funds.
- Aureos continued to manage these investments
and has now exited from all but five of them, returning the capital
to the shareholders of the funds.
- Aureos went on to raise new capital, primarily
from Development Finance Institutions and multilateral to create
17 funds, to invest sustainably in small and medium sized enterprises
in Latin America, Africa and Asia. From 10 offices in 2001, Aureos
now has 29 offices globally with 170 employees hailing from over
25 emerging markets. Aureos also went from investing in 16 emerging
and frontier markets to 34 today.
- Aureos' latest fund is the Africa Health Fund,
the first fund to fully combine development impact and finance
targets. The innovative fund is backed by investors including
the IFC (the Private Sector arm of the World Bank) and the Bill
and Melinda Gates Foundation. The intent of the fund is to invest
in small and medium sized companies in the challenged health space
in Africa, to increase access, quality and affordability of healthcare
to those at the Bottom of the Pyramid.
- Aureos continues to bridge the missing middle
in Emerging Markets. We do this through the provision of critically
necessary financing, capacity building, business mentorship and
sound Environmental, Social and Governance practices. We work
in collaboration with entrepreneurs to grow and expand small and
medium sized businesses across regional markets. This has resulted
in significant South-South trade as well as an increase in the
local sourcing of goods and services, demonstrating economic development
and vitality which underpin private sector development.
- Over the last two decades, Aureos has invested
in over 275 small and medium sized enterprises in some of the
most challenging markets Latin America, Africa and Asia- Pacific.
Today, Aureos has an active portfolio of more than 120 companies
it is working closely with to scale across the regions of the
Global South.
3. ANY FACTUAL
INFORMATION THE
SUBMITTER HAS
TO OFFER
FROM WHICH
THE COMMITTEE
MIGHT BE
ABLE TO
DRAW CONCLUSIONS,
OR WHICH
COULD BE
PUT TO
OTHER WITNESSES
FOR THEIR
REACTIONS
Please refer to Appendix 1 for details.
1. The diversified portfolio across 40+ countries
by June 2010 provided $564 million to finance Small and Medium
Enterprises in critical sectors vital for growth.
2. In 2009, Aureos portfolio companies employed 48,000
people, spending $5.6 million on capacity building in skills.
3. The companies paid local taxes of $121 million
in 2009. Portfolio companies paid in excess of $241 million cumulatively
in taxes between 2005 and 2009.
4. The viability of the regional trade by these companies
is demonstrated by the increase in total exports of $304 million
experienced by the companies in 2009.
5. Aureos utilises the power of technology to empower
businesses to grow, increase productivity, increase accountability
through enhanced governance and to scale up in a sustainable manner.
In 2009, portfolio companies spent $54.6 million in new technology.
6. The companies source local services and utilities,
spending $152 million in 2009.
4. Any recommendations for action by the Government
or others which the submitter would like the committee to consider
for inclusion in its report to the House.
- The PE model is essentially ideal for the deployment
of capital through qualified intermediaries to make the capital
efficient and effective in achieving development goals.
- The provision of appropriate capital spurs to
create economic activities, using different instruments, at different
times in the development cycles of companies is vital and is what
the CDC should continue to support. CDC has built a strong competency
as a Fund of Funds. This should not be neglected. Instead, CDC
should look to share its learning with Local Pension funds to
mobilise more capital.
- Additional capital should be brought to bear
in the Emerging Markets, through direct and indirect means without
geographical or sectoral limitations. By applying a balanced approach
to multiple emerging markets, it is possible to leverage the strengthening
trends of South-South trade to use MICs to further develop lower
income countries.
- SMEs remain a vital sector that need to be funded
and the demand is further increasing with the growth of the emerging
markets.
APPENDIX 1
Aureos is a local expert with global reach and aims
to generate superior returns through sustainable Small to Medium
business investments in the Emerging Markets.
AN EVOLVING HISTORY FROM A STRONG HERITAGE
IN DEVELOPMENT
- Aureos has in 10 years, increased the capital
invested, increased its geographical diversification
while still investing primarily in low and low-middle income
countries. Aureos developed a platform approach, investing in
low middle-income countries, utilizing the more developed human
and capital infrastructure of these countries to expand businesses
into low-income countries.
- Aureos' investments in small and medium sized
enterprises span multiple crucial sectors. This sector diversification
has compounded the development of the SME sector which
represents an overwhelming proportion of enterprises in Emerging
Economies, often providing the highest employment rates and significantly
contributing to GDP output. By investing in these businesses,
Aureos is working to fill the "Missing Middle" in
the Emerging Markets.
- The Aureos investment team is highly experienced
in developed markets and emerging markets, possessing
a diverse range of skills, backgrounds and nationalities. The
team is based in 29 offices globally. Experience has shown that
investee companies are attracted to Aureos' hands-on support,
value addition and access to its global network of sector specialists,
investment/operating partners, and commercial relationships.
- Signatory to the UN PRI, embedding strong Environmental,
Social and Governance standards.
- Aureos has developed the bespoke Aureos Sustainability
Index (ASI), a proprietary interactive tool to report development
impact over the lifetime of our investments. It collates information
on 70 quantitative and qualitative indicators to yield insight
into the relationship between financial performance and "intangibles".
The six aspects of sustainability tracked by the ASI are Financial
Performance, Economic Linkages, Socio-economic Impact, Private
Sector Development, Management & Governance, Health, Safety,
Environmental & Social.
2009 ASI GLOBAL DATA
2009 ASI ASIA DATA
2009 ASI LATIN AMERICA DATA2009 2009 ASI AFRICA AMERICA DATA
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